Tags: kleinfeld | Fifth | Amendment | Offshore | Accounts

No Fifth Amendment for Offshore Accounts

By Denis Kleinfeld
Monday, 12 Sep 2011 08:46 AM Current | Bio | Archive

The Ninth Circuit Court of Appeals has recently ruled that the Fifth Amendment to the U.S. Constitution does not apply to offshore bank accounts.

The importance of this case to you is that the reasoning used by the Court could also be used to deny the Fifth Amendment to nearly anyone in any situation involving a dispute with the government.

The background of the Ninth Circuit must also be considered in that it is the most overturned federal Appellate court.

The Fifth Amendment is intended to limit the power of government to compel a person to bear witness against himself.

On TV shows, this is the part where the police say to the alleged suspect that "you have a right to be silent...."

It seems the Ninth Circuit has a problem with the concept.

Basically, the Fifth stands for the proposition that the protection of individual liberties is a fundamental right even when some person may get away with a crime. Everybody has constitutional rights that must be protected even suspected bad people.

The Constitution was drafted and signed to be a limitation on government, not a means to facilitate an expansion of government intrusion. If suspects are not protected, then you are not protected.

Well, that's my view and belief.

The facts of this case are reasonably straightforward. A Mr. M.H. is known by the government to have an undeclared offshore bank account. The government obtained a list of names from the Swiss Bank UBS after some hostile litigation. Mr. M.H.'s name was on the list.

Consequently, the government targeted Mr. M.H. for a grand jury investigation and gave him a subpoena to produce his individual bank records. When he claimed the Fifth and refused to admit or deny the existence of his bank records, then the District Court held him in contempt.

The ploy used by the government which the court accepted was that Mr. M.H. was not asked for testimony but only his individual bank records.

It is true that those records are required to be kept. The regulations under the Bank Secrecy Act of 1970, certain sections of the Financial Crimes and Enforcement Network, and the Records and Report on Monetary Instruments Transactions all say so.

All also provide for criminal proceedings against violators. And as is well known, grand jury proceeding are only used for criminal purposes.

You would think that constitutional provisions, like the Fifth Amendment, override any statute or regulation. The Constitution is the law of the land as I remember from law school.

It may be to you and me, but not to the Ninth Circuit or the government. To them these bank records fall under a World War II era court created "required records doctrine." Which means no Fifth Amendment applies.

I do not understand how the court could essentially ignore the Supreme Court opinion which held that the Firth Amendment would apply when there is a real risk of incrimination, such as when an individuals' compliance with a particular statutory scheme would "readily provide evidence which will facilitate their convictions."

In this case, the government has battled its way to obtain the names from Swiss banks, has indicted a lot of people with offshore accounts, and is specifically targeting Mr. M.H. for tax evasion in a grand jury proceeding.

Clearly, it doesn't get much more "readily" than this case.

In spite of all that, the District Court and Ninth Circuit Court of Appeals say that the government's action is in the nature of enforcing a regulatory scheme. The criminal aspect is, in effect, inconsequential.

What the Ninth Circuit opinion points out is that while paying taxes is an obligation (thereby definitely not voluntary), this is distinguishable from voluntarily having an individual bank account and bank records and thereby part of a regulated activity.

This may be true for people, for example, in the banking business who need governmental approval to be in business, or a stockbroker for that matter. For them, retaining records for a business in a regulated industry is a cost of being in that business.

Did you know that you were in the business of being a customer when you opened an investment or managed account? Do you need governmental permission, or a license, to open a bank account?

Obviously, something is very wrong, perhaps intentionally misleading, with this sort of thinking process.

But by using just this sort of fallacious argument, the court arrives at the conclusion that by being subject to regulations, then the "required records doctrine" applies, and you don't get to fall under the protection of the Fifth Amendment of the United States Constitution.

And what about the risk of being charged with a crime?

Both the District Court and Ninth Circuit blow this off by merely stating the conclusion that since the regulations apply to civil issues as well as criminal, they were essentially regulatory in the civil sense and not criminal.

The fact that Mr. M.H. is being targeted by a grand jury for criminal tax evasion and the documents being sought are going to be used to put him in jail are not enough facts that the subpoena is clearly criminal in nature and not merely enforcing a civil regulation.

Very curious also, are the courts intentionally ignoring the Supreme Court's opinion that says that the Fifth Amendment privilege would apply where there was a real risk of incrimination. This would happen in the situation when an individual's compliance with a particular statutory scheme would "readily provide evidence which will facilitate their convictions."

It doesn't get any more "readily" then when the government is looking for the grand jury to indict you for tax evasion.

All of us should be concerned about how easily and eagerly the courts ruled to limit personal rights under the Constitution and expand the reach of government.

If you think that you have nothing to worry about, then think again. If you're not scared, then you should be.

What this case shows is that the legal system as a whole is not reliable to protect your individual liberties. Although, I am hopeful that the Supreme Court will rectify what I see as a terribly troubling decision.

Today it's offshore bank account holders that are in the government's cross hairs. Tomorrow it may well be you.

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The Ninth Circuit Court of Appeals has recently ruled that the Fifth Amendment to the U.S. Constitution does not apply to offshore bank accounts. The importance of this case to you is that the reasoning used by the Court could also be used to deny the Fifth Amendment to...
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